One of the risks of commercial property investment is tenant risk. This includes the risk that:
These risks and the way in which Fawkner Property deals with these risks is set out in a separate section of the disclosure document devoted to risks of investing.
There is limited information for the commercial property investor. Despite vendor statements, with more or less disclosure depending on the jurisdiction, and registered leases (other than in Victoria), there are many side deals between landlord and tenant and, except in major shopping centres, the trading position of a commercial tenant is difficult to find out.
Tenant demand for commercial property is what economists call a “derived demand” – meaning that the commercial real estate is used in the production of goods or services for sale by the tenant. Understanding the drivers of the business of the tenant gives insights into the prospects of the tenant and the reliability of the rental stream. It is not much use having fixed annual increases in rent if the higher rent becomes beyond the capacity of the tenant to pay.
Becoming knowledgeable in the business of particular types of tenants is exploiting the lack of information that pervades commercial property markets.
While Fawkner Property people have long experience in commercial and industrial property broadly, we have developed market leading expertise in motor vehicle fuel and convenience retail, as well as early learning.
SMSF trustees invest in property syndicates to obtain reliable regular income payments, while protecting their capital from inflation. Property syndicates provide regular income from monthly rent payment from tenants in commercial properties. With annual rent increases, the value of the properties rises over time, keeping pace with inflation.
If Investors do not vote to wind up the Trust at the Exit Offer, the trust will be extended for a time recommended in the report accompanying the Exit Offer. Essential Services Trust 1 will have a provision for annual minor liquidity events, if the trust continues after the Exit offer. These Limited Redemption offers will be for a specified number of units at Fair Value, up to 5% of the trust. Any redemption offer will be sent to all Investors and be subject to the trustee being satisfied that the offer is in the interest of all Investors.
All trusts have a fixed term – usually six or seven years – which is set out in the disclosure document. At the end of the term an Exit Offer is made to investors, giving them the chance to exit at a nominated exit price, determined by the trustee in accordance with the deed (Fair Value). If 75% or more elect to exit, the trust is wound up. If less than 75% wish to exit, buyers are found for their units at the Fair Value. Priority is given to existing unitholders to purchase the units at the sale price. If units remain unsold after six months, the trust is wound up.
There are some important contrasts:
As a commercial property syndicator, Fawkner Property creates unit trusts, which purchase commercial properties, and offers the units to investors.
The goal of these trusts is to provide investors with reliable monthly income derived from commercial properties tenants as well as capital growth in the value of the properties.